Could the "big deal" have anything to do with this - Sprint's counter attack on ATT? Hmmmmmmmmmmmm.
Hello, Internet
Phones that surf the Web are back after a false start
and aimed at new markets
AT&T has been crushing rivals like Sprint Corp.
(FON) in the wireless phone market ever since it
introduced its Digital One Rate service with free
roaming and no long-distance fees last year. But deep
in their corporate offices in Westwood, Kan., Sprint
executives are plotting their revenge. As early as next
month, Sprint plans to unveil whizzy new wireless
phones from Samsung Co. and upstart Innovative
Global Solution that will let customers tap into the vast
power of the World Wide Web. Sprint is hush-hush
about details, but its executives clearly think they've got
a blockbuster on their hands. ''When you have
something as special as this, it's worth being secretive
about it,'' says Andrew Sukawaty, CEO of Sprint
PCS, the company's wireless operation.
As excited as Sprint is, these phones will be but a small
preview of an all-new era in wireless communications.
In the next few months, phone makers will unleash
handsets that can swap E-mail, snatch data off the
Internet, deliver your favorite songs, and, oh yeah,
handle those old-fashioned conversations. It's the
long-awaited coming of wireless communications so
sophisticated--and so stable--that they can handily zap
data to anyone, anywhere. ''We're going to see an
explosion in wireless data,'' says Dennis F. Strigl, CEO
of Bell Atlantic Corp.'s mobile unit.
But don't expect the same kind of Net connection you
get on a computer--at least not yet. The information
these phones will deliver is mostly text without all the
fancy graphics and colors on the Web. But as
wireless-data speeds increase 100-fold with the advent
of so-called Third Generation technology, Net phone
capabilities will soar. Already, at the Yokosuka
Research Park outside of Tokyo, wireless carrier NTT
DoCoMo is using the technology to demonstrate how
to view video clips on mobile phones. Two or three
years out, Third Generation equipment will be widely
available. Then, for example, a real estate broker will
simply phone prospective home buyers photos of
houses for sale. ''One day, you will watch your favorite
soap opera in the car on your way home,'' says
Sven-Christer Nilsson, Ericsson's chief executive.
To get a glimpse of what lies ahead in the U.S., look to
Europe and Asia. In South Korea, Samsung's phones
let customers check out train schedules and news
headlines. British Telecom sells a service that sends an
E-mail message to a customer's phone if, for example,
Manchester United scores a goal. The customer can
then touch a button to hear an audio replay. And in
Finland, school children have become so adept at
zapping messages to each other that teachers
confiscate their phones before exams so they don't
cheat (page 176).
With such capabilities, Net phones are headed for
mass-market status. Of today's 64 million U.S.
mobile-phone customers, 15% use them for data,
according to market researcher International Data
Corp. That's expected to explode to 70% of 108
million customers by 2002. IDC hasn't estimated how
many wireless data users there will be worldwide, but if
the same percentages hold globally, those using
wireless phones to get data will increase tenfold over
the next four years, to 385 million people. ''The
potential is just huge,'' says Robert Fox, head of the
worldwide telecom practice at consultant Mercer
Management Consulting Inc.
FAMILIAR PROMISES. Look for the transition to
shake up telecom markets around the world.
Companies that move to wireless data quickly, such as
Sonera Ltd. in Finland and Sprint in the U. S., will
boost their revenues, customer loyalty, and market
share. Already, Sonera, Finland's largest phone
company, gets 5% of its wireless revenue--or $47
million--from data services.
Skeptical that Net phones are ready for prime time?
No one could blame you. Rewind to 1996, and some
of the biggest names in the business were making all the
same promises. AT&T (T) and Nokia (NOKA), in
particular, were pumping up the idea of ''Net phones''
that could pull stock quotes and headlines off the Web.
Even with such firepower behind them, the phones
flopped, with only tens of thousands sold. For starters,
the handsets were bulky and, at up to
$1,000, expensive. The rates were pricey, too: AT&T
charged a minimum of 40 a month for its PocketNet
service. ''They've been a disaster,'' says Andrew
Seybold, editor-in-chief of the newsletter Outlook,
which covers mobile computing. This time, it should be
different. The new batch of Net phones are far
superior. AT&T's approach was to use one technology
for voice and another for data, so the phones weighed
a hefty nine ounces and had to be crowbarred into a
jacket pocket. The new handsets are a mere five or six
ounces and look like the latest, sleekest mobile phones.
''First and foremost, we've stressed that it has to be a
very good phone,'' says William Y. Son, CEO of
Innovative Global Solution, based in La Jolla, Calif.
And you won't need to be a pinstripe warrior on an
expense account to phone the Net, either. When
AT&T introduced its PocketNet service, it charged
one rate for voice calls and a different rate for data
calls. To add to the confusion, you paid for the data
service based on the number of bits you sent or
received--not the number of minutes you used. Sprint
won't disclose its pricing plans, but analysts think it will
charge the same flat per-minute rate for data calls that it
collects for voice calls. With simplicity and more
competitors, ''we anticipate prices are going to come
down,'' says senior analyst Julie Rietman of IDC.
The biggest reason these new phones will succeed is
the allure of the Net itself. Wireless companies are
looking for new competitive weapons--and the
booming popularity of the Web could make it a killer.
As the number of cybersurfers worldwide soars to 143
million this year from 82 million in 1997, more people
care about having access to E-mail and the Net.
It helps that Net companies are just as eager to tap into
the mobile-phone market. That's crucial because Web
pages have to be modified before wireless customers
can download them onto tiny phone screens. Today,
Web site operators are busy stripping out the graphics
and reworking content into simple text that can be read
in a small space, typically with a standard called
Wireless Application Protocol, or WAP. ''The
mobile-phone market is one of our most important
markets,'' says Ellen Siminoff, vice-president for
business development and strategic planning at Internet
portal Yahoo! Inc.
Wireless phones won't be the only way to stay
connected on the road. 3Com Corp. (COMS) has
teamed up with BellSouth Corp. (BLS)to develop a
version of its popular Palm organizer, the Palm VII,
that incorporates BellSouth's two-way messaging
capabilities. Users will be able to check quotes and
trade stocks online, buy airline tickets, and get
sightseeing tips over the Web. ''We really look for that
to make a big splash,'' says analyst Matt Hoffman of
market researcher Dataquest Inc.
STILL EARLY. Mobile-phone players are betting
Net services can help their bottom lines, too. By
offering data, companies can improve loyalty and lower
''churn'' rates--the number of customers who leave
carriers each year. For example, a French wireless
player called SFR dropped its churn to 8% from 25%
after introducing data services. That's no small thing:
Wireless carriers have an average churn of about 30%
per year, and it costs $300 to win a new customer. A
company with 1 million customers is paying $90 million
each year to replace the subscribers it's losing.
Dropping the churn rate to 8% saves $66 million each
year.
Still, for all the new, cool stuff that Web phones will
offer, these are just the early days of wireless data. The
services that carriers are rolling out this year typically
transmit data at poky speeds of 14.4 kilobits per
second--only one half or one quarter the speed that
most people get from their PC modems. That's not bad
for now, but it's far from enough to look at
eye-catching Web sites, much less video clips.
For that, phone companies need to push the pedal to
the metal. The first stage of improvement will be to
pump data speeds up to 56 or even 128 kbps. Most of
this equipment has been developed by the likes of
Ericsson (ERICY) and Lucent Technologies Inc. (LU),
but it's not widely deployed yet because it's expensive
and there are too few phones to take advantage of it.
By 2001, most U.S. wireless players expect they'll be
zipping data along at 56 kbps.
Wireless data will truly hit demon speeds, though, when
something called 3G, or the Third Generation, arrives.
Analog was the first, digital voice was the second--data
the third. How will 3G supercharge the delivery of
wireless data? Instead of using a 25 kilohertz radio
channel as a typical voice call does, a 3G data call
could grab eight 25 kilohertz channels at
once--increasing speeds eightfold. What's more, it
could move data in superefficient bits--or
''packets''--instead of traditional circuits. The result will
be a hundredfold increase in data speeds, to as much
as 2 megabits per second. ''You can probably get any
song that has ever been recorded anywhere in history,
and you can listen to it anyplace,'' says Dave M.
Poticny, vice-president of wireless infrastructure
strategy at Lucent.
Don't rush out to get your 3G phone just yet. Japan will
probably be the first nation to have the technology
widely available--some say as early as 2001 (page
178). That's largely because its existing wireless
networks already are overloaded with voice traffic.
Europe will follow in 2002 or so, and the U.S.
probably will bring up the rear. American carriers by
and large installed second-generation wireless
equipment most recently and aren't anxious for a pricey
new round of investments.
AT&T'S DILEMMA. Such a dramatic change in
wireless technology could create upheaval in the
telecom industry. While voice is a commodity that
allows for little differentiation, data is tremendously
varied. Just think if one phone company lets you get
only Web pages on your phone while a competitor
provides Web pages, E-mail, notification if stocks you
selected moved 10%, and the ability to trade those
stocks from your phone. That's a no-brainer. The
bottom line: The carriers that quickly incorporate data
services in easy-to-use ways will come out on top.
Emphasizing E-mail and Net access helped Sweden's
Telia increase wireless revenues 18%, to $880 million,
in 1998.
The big loser in the U.S. market could be AT&T. Its
Digital One Rate has been a huge hit, attracting more
than a million new customers so far. But its
wireless-data strategy looks problematic. AT&T is
planning to combine its existing voice technology with a
separate technology called cellular digital packet data
(CDPD) to handle data calls. Cramming two
technologies into a phone risks making it bulky--exactly
the problem with AT&T's first PocketNet phones.
What's more, few phone makers are interested in
making CDPD phones because they're not sure the
technology has wide appeal. AT&T says Mitsubishi is
planning to deliver a CDPD phone by the fourth
quarter, although it cautions the date is not definite.
''We're working with phone manufacturers to come out
with another [phone] next year,'' says Daniel Hesse,
chief executive of AT&T Wireless Services.
Here's the dilemma for AT&T: Its existing voice
technology--something called time division multiple
access, or TDMA--can handle data traffic. But putting
data over TDMA would require AT&T to install new
equipment in virtually all of its 10,000 cell sites across
the U.S. The company is reluctant to do that, since it
spent millions of dollars in the mid-1990s to install
CDPD equipment nationwide. Moving to TDMA for
data would cost the company tens of millions more.
AT&T argues that there's little point to the expense. It
says it plans to be one of the first U.S. companies to
deploy 3G technology. It plans on rolling out the
equipment in 2001 with broad availability by 2002.
''We don't want to be distracted doing an interim
solution that will become obsolete when we go to 3G,''
says Kendra VanderMeulen, AT&T's senior
vice-president for wireless products. The risk is that the
company could be left without a competitive Web
phone for three years. ''AT&T is in real trouble if data
takes off on wireless,'' warns consultant Seybold.
Other phone companies think that they need an
immediate solution. Like AT&T, Bell Atlantic (BEL)
has a CDPD network and a separate wireless voice
network. However, it has chosen to upgrade its voice
network to handle data rather than use CDPD for the
mass market. ''[CDPD] is the tank, and it is never
going to be a race car,'' says Richard J. Lynch, chief
technology officer at Bell Atlantic's mobile operation.
Bell Atlantic will continue to use CDPD for
industry-specific tasks like transmitting license-plate
information to police squad cars.
Who will benefit from AT&T's problems? Sprint looks
the most likely. Although it still has coverage problems
in parts of the U.S., Sprint has the advantage of using
one wireless technology at one radio frequency. That
makes it easier to roll out new data technologies--and
with the planned rollout of Net phones this summer,
Sprint is pushing the advantage aggressively. ''We're on
a development path that we think is a generation
ahead,'' says Sukawaty, who plans to install 3G gear as
soon as customers demand it.
Other companies are hoping to use the promise of Net
phones to improve their competitive position, too. Bell
Atlantic is so serious about giving subscribers access to
the Web that by the end of this year, it expects that all
of the new mobile phones it orders will include Web
browsers. MCI WorldCom Inc. (WCOM), which has
no wireless presence today, could become a factor if
its current negotiations to acquire wireless player
Nextel Communications Inc. (NXTL) are completed.
Motorola Inc. (MOT) is planning to roll out a new
Nextel phone this summer that includes Web browsing.
So get ready to phone the Internet. With wireless
companies scrambling for an edge, Web phones are
bound to be real this time.
By Peter Elstrom in New York, with bureau reports |
